A lot has changed since Peter van Rossum last spoke with CFO Europe in November 2007. Then, the finance chief was busy ploughing through the integration of French commercial-property group Unibail and Dutch peer Rodamco Europe, confident that the enlarged group’s focus on cash flow would see it through the fallout from the subprime crisis.
The outlook for commercial-property investment today is much darker. According the Investment Property Databank, real estate investment provided mixed results across Europe during 2008—while returns in the Netherlands and Danish markets slowed but remained positive, those in the UK hit a low not seen since the 1970s. Overall investment in European real estate fell by more than 50% compared with 2007, according to property consultant CB Richard Ellis.
But Unibail-Rodamco, which invests in, operates and develops a €24.6 billion portfolio of shopping centres, offices and exhibition centres in continental Europe, has delivered. Last year its rental income was €1.2 billion, compared with €1.1 billion in 2007. Earnings per share also rose. For van Rossum, a board member of Rodamco before the €11 billion merger in 2007, the downturn has offered as many opportunities as challenges.
When we spoke in 2007, you were optimistic about the outlook for Unibail-Rodamco. Where does the company stand today?
It’s been an interesting time for real estate in general and for us in particular. There is concern about retail, and different countries are affected in different ways—Spain is a good example of a country more affected than others. But retailers are looking for safe havens, places where people continue to come, where the footfall is strong. And those are the centres that we invest in, so we still see resilience in our business model and in the asset class.
Last year we sold or swapped some of the assets that don’t fit our strategy, which is to focus on large shopping centres in continental Europe. We also bought two of Europe’s top 25 shopping malls [in Austria and Spain]. In normal years that would never happen, but in 2008 a number of top assets were trading. Our balance sheet is very strong. The loan-to-value ratio is 30%, and it was 28% at mid-year, so there’s only a slight increase despite the fact that the value of our real estate took a hit in 2008.
What’s happening to the value?
We took on average a hit of just over 9% on our assets in 2008. But the important thing that we always remind the investment community is that we’re not traders of our asset base. We’re long-term investors and we focus on cash-flow growth. During the past couple of years we never took great pride that the value of real estate went through the roof. By the same token, we’re not overly worried by the fact that we see a correction at the moment, because it’s not hitting us in our cash flow. On the contrary, it’s opening up opportunities where, thanks to a strong balance sheet, we can make some decisive actions on assets that we like. In the past that was more difficult because there was a huge amount of competition from a lot of financial players active in the market. But now hedge funds and other financial buyers have all but disappeared and it’s the reputable, dedicated real estate players who are active at the moment.